San Diego City Council

City Auditor Concludes Previous City Administration Failed to Disclose Full Property Acquisition Details

NBC Universal, Inc.

San Diego has failed to follow best practices and undergoes due diligence before purchasing and leasing buildings since 2015, according to a performance audit heard by a City Council committee Wednesday.

"It depends on the individual acquisitions on some of them. We certainly could have done better. We could have protected the taxpayer better. Those are probably lost costs, but we are engaged in litigation in at least two of those acquisitions," said council member Joe Lacava." Hopefully, more information will become uncovered."

The audit was brought on by questions surrounding building purchases since 2015 and whether they were in the city's best interest. The Office of the City Auditor (OCA) said it wanted to find out if city administration followed protocol when making major purchases, and if sufficient building acquisition oversight mechanisms were in place.

The audit focused on the 101 Ash Street, Civic Center Plaza, Housing Navigation Center, Kearny Mesa Repair Facility and Palm Avenue Hotel deals, which totaled more than $230 million.

The lack of best practices resulted in significantly increased costs and underutilized facilities, the report found.

The 117-page report also says the Faulconer administration “diminished” the city council’s oversite capabilities by failing to provide complete and accurate information about the Ash Street purchase as well as three other pieces of real estate, including Civic Center Plaza.

"The purpose, of course of these audits are not just to disclose past actions but to make a set of recommendations of how we can do better," Lacava said.

The auditor's office made 10 specific recommendations to help ensure the city follows best practices when acquiring major buildings and informs the city council and the public of all material facts. Some of those recommendations include getting independent appraisals and building condition assessments. Also, it will require all contractors or advisors on real estate transactions to have a signed contract with the city.

"We are changing the culture of how we're going to do business here in the city. That the real estate transactions are going to protect the city and the taxpayers even if that occasionally means we might miss out on an opportunity, but the most important thing is that transparency making sure that we do our due diligence and feasibility studies in a thoughtful manner," Lacava said.

NBC 7 reached out to the Faulconer for Governor campaign for a comment on the audit and specifically on the Ash Street purchase.

NBC 7 received the following written statement:

"The City of San Diego had a long-term need for additional office space and while the intention of purchasing a building was sound, the execution of this deal was flawed. We’ve recently found out a major reason why: the city’s outside real-estate expert was playing both sides of the transaction, he did not disclose this relationship or the millions he made on the transaction. Mayor Faulconer started a forensic audit to get to the bottom of this and stopped all payments to the seller. He continues to fully support the City’s sustained efforts to hold accountable anyone who wrongfully profited off of taxpayers." - John Burke, Communications Director

To view the full report, click here.

A report from the Office of the City Auditor details missteps in the city's purchases of five buildings totaling more than $130 million.
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